Bankers ask RBI to avoid rate hikes to manage liquidity

Bankers have urged the Reserve Bank of India (RBI) to have a relook at the loan waiver scheme and look at alternate ways to curtail inflation instead of resorting to the cash reserve ratio (CRR) and repo rate hike. This was indicated by bankers to RBI in a pre-credit policy meeting held in Mumbai. The meeting was attended by deputy governors of RBI, TS Narayanasami, chairman of Indian Banks Association (IBA), and CMD of Bank of India, KC Chakrabarty, deputy chairman of IBA and CMD of PNB, OP Bhatt, chairman of State Bank of India, Aditya Puri, deputy chairman of IBA and MD of HDFC Bank, MD Mallya, CMD of Bank of Baroda and Vishwavir Ahuja, MD & CEO of Bank of America. Bankers have told RBI that the way the farm waiver package is calculated they are not full compensated. According to a senior banker, since the entire overdue is not paid, it is not having a positive impact on their balance sheet. Bankers once again appealed to RBI that the central bank should pay interest on CRR. Currently, CRR is pegged at 8.5% which means that 8.5% of bank deposits have to be parked with RBI. They have also told that RBI should look at other ways to choke liquidity in order to control inflation rather than relying only on CRR and the repo rate hike. Also, one of the bankers suggested that RBI should liberalise the accounting policy for home loans. Currently, a loan is considered bad account if the borrower fails to pay within 90 days from the due date. However, bankers have now suggested that this norm should be liberalised in the case of home loan borrowers. Sources said that RBI officials have turned down the proposal on ground that India provisioning norms are in line with international norm, and thus, it can not be liberalised further. Another banker had suggested that banks should be allowed more than one time opportunity to shift securities from available-for-sale (AFS) and held-for-trading (HFT) to held-to-maturity (HTM) category. So far, a bank can shift portfolio from AFS and HFT to HTM only once in a year. Securities in AFS and HFT have to revalue securities in their books at the current market price a practice popularly known as mark-to-market (MTM) while those in HTM are not required to be MTM. Bankers feel that due to rising interest rates, they should be given one more chance to shift securities to HTM will reduce their treasury losses. – www.economictimes.indiatimes.com